GameStop (GME) Underlying Trends Better Than Miss Shows - Sterne Agee CRT

Sterne Agee CRT analyst, Arvind Bhatia, believes underlying trends at GameStop (NYSE: GME) are better than the $0.05 EPS miss in 3Q. The firm reiterated a Buy rating while lowering estimates and its price target to $41.00 (from $52.00).

Positives in the quarter include:

-GME held a 53% share of new PS4/Xbox One software sales during the quarter and remains the dominant player in the category

-Management stated digital downloads of AAA titles during the quarter followed normal patterns and did not experience a step-function increase

-Pre-owned sales were up 5% y/y with steady gross margins

-Tech brand sales were up 64% y/y with gross profits +81% y/y

-Digital was up 14% y/y

Despite the positives mentioned in his note, the analyst is taking the PT down to $41 from $52 for a longer list of reasons:

SSS and operating EPS of -1.1% / $0.54 were below consensus of +2% / $0.59.

New software sales declined 9.3% (-4.2% FX neutral)

New hardware declined 20.4% (-15.4% FX neutral), below the NPD reported industry trends

Later-than-expected sales acceleration from hardware price cuts

Delays in opening tech brand stores during the quarter

Underperformance in Halo 5 and Assassin’s Creed Syndicate

Estimates dropped to $3.75/$4.13 for 2015/2016 on the revised outlook. Management reaffirmed full-year EPS guidance of $3.66 to $3.88, but this is likely to be viewed as aggressive by the rest off the street.

For an analyst ratings summary and ratings history on GameStop click here. For more ratings news on GameStop click here.

Shares of GameStop closed at $37.61 yesterday.

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